TaxTMI 
TaxTMI 
2019 (2) TMI 1183
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....ng oppression and mismanagement of Respondent No.1 (hereafter referred as 'Company'). In the Company Petition, present Appellants 2 and 3 were arrayed as Respondents 7 and 8. The learned National Company Law Tribunal, Hyderabad Bench ('NCLT', in short) dismissed the Company Petition on 14.11.2017. The present Appeal is filed against the dismissal and original Respondents 7 and 8 have become Appellants 2 and 3, arraying original Petitioner as Appellant No.1. 1.1 We will refer to the parties in the manner in which they were arrayed in NCLT. 2. The original Petitioner in the Company Petition referred to various details as to how the original Petitioner became shareholder in the Company (Respondent No.1) and further developments so as to make the following prayers in the Company Petition:- "a) The Board of Directors of the 1st Respondent be superseded by a Committee constituted by this Hon'ble Board consisting of a nomine of the Petitioner, a nominee of the Respondent, and an Administrator / Independent Director/ Special Officer appointed by this Hon'ble Board to take charge over the management and affairs of the Company in terms of a scheme of management framed by this ....
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....ferring to the paragraphs objected to from the Impugned Order, it would be appropriate to refer to some of the facts to understand the dispute. 4. It is stated by the Petitioner in the case put up in NCLT:- a) That Original Respondent No.2 - Dijaya-Malind JV (Mauritius) Limited is a subsidiary of original Respondent No.9 - Dijaya (Mauritius) Limited. b) Original Respondent No.9 is subsidiary of Respondent No.11 - Dijaya Corporation Berhard, which Respondent No.11 is a listed Company in Malaysia Stock Exchange. c) Original Respondent No.10 - S.N.R.L. Investments Limited, a company of Mauritius has 22% equity shares of original Respondent No.2 - Dijaya-Malind JV (Mauritius) Limited. d) Respondent No.11 is ultimate holding Company of Respondent No.1 Company - Dijaya-Malind Properties (India) Private Limited. e) The original Petitioner is public limited company with 68 shareholders. f) Petitioner acquired interest in Respondent No.1 Company as per Shareholders Agreement dated 09.04.2007. Petitioner has 26% of paid up share capital of Respondent No.1 and Respondent No.2 has 74,000/- ordinary shares, i.e. 74% of paid up capital of ....
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....Diary No.3812) inter alia directing that allotment of further shares in the matter of Telangana Spinning and dealing with the fixed assets of the Company henceforth would be subject to outcome of the Company Petition. d) After such Order dated 06.03.2007 had been passed, record shows (Page - 35 Diary No.5224) that original Petitioner executed Shareholders Agreement with Respondent No.2 - Dijaya-Malind JV (Mauritius) Ltd. so as to have shares in Respondent No.1 Company - Dijaya-Malind Properties (India) Pvt. Ltd. As per this agreement, Respondent No.2 would be having 74% of the paid up share capital and Petitioner was to have the remaining 26%. This was done is not in dispute. One of the recitals states that the parties are desirous to become shareholders of Respondent No.1, who has been or about to be appointed as Property Developer to undertake property development on portion of land of M/s. Telangana Spinning, in the first instance. The Petitioner joined Respondent No.1 Company. e) On the same date of 9th April, 2007, Telangana Spinning (with Respondent No.8 signing as MD) as land owner and Respondent No.2 - Dijaya-Malind JV (Mauritius) Ltd. as Developer and Res....
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....Meeting and it could be decided only at a General Meeting of shareholders as the termination of the agreement would result in loss of substratum of the Respondent No.1 Company. Petitioner claimed that it also objected to the holding of meeting at Malaysia on short notice. 8. The Petitioner further claimed in NCLT that original Respondents 3 to 6 caused a legal Notice dated 3rd August, 2010 sent to Telangana Spinning whereby the Agreement dated 9th April, 2007 was purportedly terminated and demand was made of repayment of Rs. 12,70,80,000/- and damages as Rs. 1,81,08,344/-. According to Petitioner, such Notice was sent even before the proposed meeting dated 16th August, 2010 could be held. Petitioner claimed that original Respondents 7 and 8 then received Notice dated 12th August, 2010 informing that the Board Meeting of Respondent No.1 which was to be held at Malaysia, will be held on 02.09.2010. Petitioner claimed that in the Board Meeting dated 2nd September, 2010, the termination of Deed of Novation cum Joint Agreement cum GPA was confirmed. 9. Petitioner further claimed in NCLT that in the Meeting dated 2nd September, 2010 registered Office of the Company was also shifted....
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....ioned that the main cause for filing of the Petition was termination of the deed of Novation cum Joint Development Agreement dated 9th April 2007. It referred to the various documents and discussed the averments which were made by the parties. It would be appropriate to reproduce paragraphs 24 and 28 of the Impugned Order regarding which grievance has been made in the prayer of this Appeal. We are reproducing para - 27 also for reference. The same reads as under:- "24. It is also not in dispute that CP No.22 of 2007 was filed by Ishwarlal Patwari and others before the then CLB, Chennai under section 111A, 235, 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, by inter-alia seeking to allow proportionately representation of the petitioners the Board of Directors of the Company; to declare Board meeting held on 11.02.2002 and consequently resolutions; to declare the annual returns dated 31.07.1997 and 22.09.1997 as null and void. The CLB passed interim order dated 16.03.2007, by inter-alia stating that any allotment further shares and dealing with the petitioner. So the contention of the petitioner that the land in question is free from all encumbrances is not born....
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....ct, 1956 as held in the case of Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [AIR 1965 Guj 96], where, the Hon'ble Gujarat High Court has categorically and in no uncertain terms observed as follows: "A resolution may be passed by the board of directors which may in the passing contravene a provision of law, but it may be very much in the interest of the Company and of the shareholders. Such a resolution may be attacked as invalid in a suit or other appropriate proceeding, but not being oppressive to the minority shareholders or prejudicial to the interests of the Company, it cannot be challenged in a petition under section 397 or 398." The above finding was upheld by the Hon'ble Supreme Court in the case of Sangram Singh Gaekwad v. Shantadevi P. Gaekwad (supra). Thus, even assuming that the Board Resolution dated September 2, 2010 confirming the terminating the said Agreement is in contravention of Section 293 of the Companies Act (now Section 180 of Companies Act, 2013), the same cannot be deemed to be oppressive under Section 397 and 398 of the Companies Act (now Section 241 and 242 of the Companies Act, 2013). 28. As stated ....
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....that the Development Agreement dated 22.11.2006 may be read with Deed of Novation dated 9th April, 2007 for subject matter pending before Arbitration of 3 Hon'ble Members headed by retired Judges of the Hon'ble the Supreme Court of India. 12. Against this, the learned Counsel for Respondents submitted that the original Petitioner had filed the Company Petition on behalf of its sister concern Telangana Spinning/Starlite Global to set aside the decision taken by Respondent No.1 Company in its meeting dated 2nd September, 2010 ratifying the termination of the Deed of Novation. It has been argued that the Petition was rightly dismissed by NCLT as Sections 397 and 398 of the Companies Act, 1956 ('old Act', in brief) could not be invoked so as to encompass dispute relating to contractual matters. The termination of that Agreement in no way affected the rights of the original Petitioner as a shareholder of Respondent No.1 Company and thus, the Company Petition was misconceived and rightly dismissed. It has also been argued by the learned Counsel for the Respondents that the Company Petition was filed as a counter blast to the arbitration proceedings which had been invoked by original R....
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....ial difference to the Petitioner. The agreements are matter of dispute before the Hon'ble Arbitrators and merely because of such use of word "same parties" by NCLT, will not change the documents. The purport and context of the sentence is material. The NCLT rightly refrained from interfering on the basis of such documents and reiterated that the agreements included Arbitration Clause. When the original Petitioner was asserting before NCLT that by issuing Termination Notice, substratum of Respondent No.1 would be lost, the Petitioner itself invited NCLT to enter into the contents of the documents. When NCLT did this, the Petitioner cannot turn around and say that this or that observation in paragraphs - 24 and 28 of the Impugned Order should not have been made. The only observation which we find necessary to make with reference to the objections raised with regard to paragraphs - 24 and 28 of the Impugned Order, is that the observations and comments of the learned NCLT in the Impugned Order and our observations and comments, in this present Judgement with regard to the Agreements, which are matter of dispute before the Hon'ble Arbitrators, will not weigh for the purpose of decision ....
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....spondents which show that for various such meetings, the representative Directors of the Appellants were attending Meetings at Malaysia and earlier never objected or complained of inconvenience. The argument is that the Appellants 2 and 3 should be stopped from raising such grievances which are afterthought. The Counsel submitted that the Appellant No.2 has attended Board Meeting even vide video conferencing which is permitted under the Articles of Association of this Company. It has been further argued that it has been wrongly claimed by the Appellants that the registered office was shifted to Malaysia. In the meeting dated 2nd September, 2010, the office was merely shifted to another place in the same city of Hyderabad. The argument is that it has already been held in various Judgements that this by itself does not constitute oppression in the absence of material to show that the Company incurred heavy expenses for shifting the Office. It has been argued by the learned Counsel for the Respondents that Notices of all Board Meetings were duly sent to the representatives of the Appellant - Petitioner and if the Board did not find the grievances raised in the letters dated 11.08.2010....
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....tice for rectifying the breach dated 17.05.2010 and the notice of termination of agreement dated 03.08.2010 was taken up during the meeting. After discussing the entire issue as per the above notices and the dissent note made by the nominee Directors of the R1 Company, the Board ratified and confirmed the notices as required under Article 38 of Articles of Association of the Company and also authorized the Managing Director to take consequential action to implement the decisions." Original Respondent No.8 appears to have sent letter dated 11th August, 2010 to original Respondent No.2 accepting receipt of Notice dated 30th July, 2010 and subsequent Notice of Amendment to the Agenda. He stated that he had objection to the meeting being held at Kuala Lumpur at such short Notice. The objection goes away as the Meeting initially proposed on 16th August, 2010 was postponed to 2nd September, 2010. The original Petitioner has not pointed out as to how termination of this business venture of the Company was required under any of the provisions to be placed before the General Body. We recall the Shareholders Agreement (Page 35 - Diary No.5224) where the recital mentioned that the Responde....